Venture view: Dave Grimm at AlbionVC talks about the shifting sands of deep tech investing

“Last year was a difficult year for generalist VCs, but deep tech didn’t really suffer the same slowdown,” says Dave Grimm, partner at London-based AlbionVC, which in August last year entered into a £13m Series A investment round for University of Bristol and UCL quantum start-up Phasecraft. “There’s certainly a lot more optimism for 2024.”

For Grimm, a seasoned analyst and investor in quantum computing, cleantech, machine learning, and data analytics technologies, there’s still a way to go for UK start-up hubs to reach the levels of their US counterparts. That said, he admits there is a lot more deep tech cash in the UK market today and much of that is focused on university spin-outs, where he expects to see even more activity this year.

“There aren’t many funds that will write a £5m cheque as part of a £15-20m round at the moment”

“There are more sources of capital around today for the deep tech start-ups, than say five years ago,” says Grimm. “People are more willing to invest in university, IP-heavy tech now.”

Grimm references Northern Gritstone, which funds start-ups in the north of England, Oxford Science Enterprises (OSE), and Albion’s own fund at UCL in London, managed in collaboration with UCL Business, as good examples of how deep tech investing is maturing, at least around university-driven innovation. The challenge comes with Series A and B investing, which, he says, for deep tech is still immature.

“There aren’t many funds that will write a £5m cheque as part of a £15-20m round at the moment,” says Grimm. “There is some support at least from the British Business Bank’s £375m breakthrough fund, which is super welcome and is being more flexible when it comes to round sizes and investment parameters.”

“People are more willing to invest in university, IP-heavy tech now”

Despite this Grimm admits there is still work to do to help start-ups scale and fill in the development gaps, turning science into actual products, which can be expensive. While he says he welcomes other funds popping-up, such as the NATO Innovation Fund, it is, he says, a work in progress.

One idea that the government might consider is to raise the VCT and EIS investment limits for relevant companies.

“The VCTs we manage can do up to £20m of investment in knowledge-intensive companies, but with deep tech businesses, you might go further than that to keep technology funded in the UK. It still needs some thought.”

Is quantum overcooked?

The challenge is to not let scale-ups slip through the UK’s fingers. Quantum computing is a good example of this. Grimm says he recently attended an OSE New Compute event in Oxford where four out of seven start-ups on show were quantum computing businesses. However, Grimm suggests that there is a danger here of over investing in quantum, when other, shorter and medium-term technologies deserve attention.

“There’s a lot of technology related to the future of computing outside of quantum that is probably going to make a bigger impact in the medium term,” says Grimm. “Processing, data transfer, memory, photonics… there’s lots of exciting tech that can impact classical computing still. We have to be careful we don’t believe the quantum hype.”

Grimm talks about Phasecraft (a start-up AlbionVC first met in 2017, long before the company’s Series A funding round) as being one of the “less hypey” quantum businesses he helped spin out of UCL by leading their first round, displaying a realism in terms of problems that need to be solved and the time it is going to take to solve them. He says they are now “quite bullish” and seeing progress but people have to accept this is still a long haul.

It’s also important to recognise shifts in the wider market. Grimm laughs at OpenAI’s Sam Altman’s recent quest for $7 trillion investment but points out this is in fact highlighting a growing issue. “The problem no longer lies with software,” says Grimm. “Over the next five to ten years, it’s going to be about hardware, certainly in relation to AI. The limitations of the hardware are really going to hit home.”

Herein lies a problem for innovation. AI will become even more crucial to solving problems, whether that’s hydrogen storage challenges or within quantum development. AI is going to be the fundamental tool but we cannot rely on current GPUs, which, Grimm says, are not optimised for AI.

“What’s exciting over the next couple of years is, how do we create this compute that allows us to use this amazing AI software coming onto the market, to its full potential?” he asks. “This is where venture gets interesting because you see a real limitation and a need for new innovation. We are already seeing some interesting start-ups in this space, in memory and in photonics.”

“There’s a lot of technology related to the future of computing outside of quantum that is probably going to make a bigger impact in the medium term”

Grimm also talks about growing interest in agentic AI – “how AI interacts in a kind of slightly messy, complex, real world” – but also in energy transition, and battery and fuel cell technologies.  He has previously led an investment in UCL spin-out Bramble Energy, which makes hydrogen fuel cells out of printed circuit boards, for example.

The overall outlook is bright, at least according to Grimm, but it’s not a straight line. Quantum, for example, remains an interest, but he is seeing a need for bridging technologies – hardware in particular – that can help innovators accelerate computing today to enable more innovation tomorrow. It’s an exciting time, and as Grimm says, deep tech investing is anything but boring.

Dave Grimm is a partner at AlbionVC. He manages the UCL Technology Fund’s Computer and Physical Sciences investment team, investing in a wide range of deep tech opportunities, including quantum computing, machine learning and data analytics, cleantech, medtech, edtech, and hardware.